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The Globe and Mail

Venezuela's devaluation could hurt U.S. companies

Venezuela's Hugo Chavez

Carlos Garcia Rawlins

U.S. companies selling products in Venezuela are likely to see lower profits and take charges because of higher prices resulting from devaluation of the country's currency.

Avon Products Inc. and Colgate-Palmolive Co could feel the biggest effect among companies that make household and personal products because they derive a greater percentage of their total sales from Venezuela than their peers, analysts said.

Venezuela is largely dependent on imports for consumer goods. Devaluation of the bolivar announced late on Friday by President Hugo Chavez triggered a shopping spree in the capital city Caracas, as people tried to beat price increases.

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Items classified as nonessential now have an exchange rate of 4.3 bolivars per U.S. dollar, up from 2.15 and compared with a new rate of 2.6 for essential imports such as food and medicine.

That means companies that had been converting results from Venezuela into U.S. dollars at the official exchange rate of 2.15 must now convert at the new rate of 4.3 if the goods are deemed nonessential.

BMO analyst Connie Maneaty downgraded the whole personal and household product sector she covers to "market perform" from "outperform" Monday.

Ms. Maneaty had downgraded Avon, Colgate and Kimberly-Clark Corp in early December over concerns about a potential devaluation.

On Monday, she downgraded Procter & Gamble Co.

She also cut earnings estimates for companies doing business in Venezuela such as Avon, Colgate and Energizer Holdings Inc. , and cut price targets on shares of those three companies.

Avon shares fell 3.4 per cent, the sharpest drop in the sector. Energizer declined 1.6 per cent, Colgate was down 1.2 per cent and P&G and Kimberly-Clark each declined 1 per cent.

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Dow Chemical, the largest U.S.-based chemical manufacturer, said the devaluation was "not material" for it.

DuPont's Pioneer unit declined to say specifically how the Venezuelan devaluation would affect its results, calling Venezuela a small, but important, market.

Dow's shares fell 1 per cent, while DuPont shares rose 1.2 per cent.

Bill Pecoriello of Consumer Edge Research estimated that U.S. consumer products, food and beverage makers exposed to Venezuela could feel an average earnings decline of about 2 per cent after accounting for currency effects.

His company estimated an earnings-per-share decline of about 6 per cent for Avon, 4.7 per cent for Colgate and 2.7 per cent for Energizer, and smaller declines for other companies in the sector.

Colgate said Monday that it expects to record a one-time gain in the first quarter of about 12 cents per share, and charges of about 4 cents to 6 cents per share in each of the quarters of the year, related to the devaluation.

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Venezuela accounts for about 6 per cent of Colgate's sales, according to analysts.

P&G, the world's largest maker of household products, derives a greater amount of sales from Venezuela than its peers, but those sales account for a smaller, undisclosed percentage of its total sales.

In October, Avon said Venezuela accounted for about 5 per cent of its revenue and 11 per cent of operating profit during the first nine months of 2009. At that time, it said its earnings would be "negatively impacted" if Venezuela's currency was devalued and inflation rose.

Spokeswomen for Avon and P&G said their companies were reviewing the situation. Kimberly-Clark declined to comment and Energizer could not be reached.

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